On 27 Dec. 2021, China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly issued the “Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Edition)” (外商投资准入特别管理措施(负面清单)(2021年版)) and the “Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2021 Edition)”(自由贸易试验区外商投资准入特别管理措施(负面清单)(2021年版)). The two documents (collectively referred to as the “2021 Negative List”) came into effect on 1 Jan. 2022 and replace the 2020 National Negative List and Pilot Free Trade Zone Negative List.
The 2021 Negative List is further reduced to 31 articles and 27 articles, with a reduction ratio of 6.1% and 10% respectively.
The main changes in the 2021 Negative List are as follows.
(1) Foreign investment in manufacturing in pilot free trade zones is not restricted.
The original restriction on manufacturing in Article 3 in the 2020 Pilot Free Trade Zone Negative List is removed.
The 2021 Negative List removes the restrictions on foreign investment in the manufacturing of passenger cars and satellite television broadcasting ground receiving facilities in pilot free trade zones.
This means that there will be no restrictions on the number of joint venture factories for passenger cars established by foreign investors in China, and there will be no restrictions on the percentage of shareholding.
Previously, Tesla had already set up a wholly-owned factory, Tesla Giga Shanghai, in China’s free trade zone.
Outside of free trade zones, restrictions on foreign investment remain in place for the sectors of printing and Chinese medicine manufacturing.
(2) Foreign investors can invest in market surveys in pilot free trade zones
The 2021 Negative List removes restrictions on foreign investors’ shareholding in market surveys. However, for radio and television rating surveys, the controlling stake shall be held by the Chinese party.
Outside free trade zones, foreign investors in market surveys are still required to establish joint ventures with Chinese investors and shall not hold a controlling stake in such joint ventures.
(3) Review of domestic companies’ overseas listing
The 2021 Negative List provides, for the first time, the review of overseas listing of domestic companies.
If a domestic company is engaged in a field where foreign investment is prohibited, its share issuance and overseas listing shall be subject to the examination and approval of the Chinese government, and the foreign investors shall not participate in the operation and management of such company, and its shareholding shall not be higher than that required by Chinese securities regulation.
Many Chinese companies listed overseas are engaged in sectors where foreign investment is prohibited, such as Internet information services. Their overseas listings were achieved through the VIE structure. This practice will now be subject to examination to prevent foreign investors from circumventing the restrictions on the Negative List in this way.
(4) Coordination between the Negative List for Foreign Investment Access and the Negative List for Market Access
China currently has two sets of negative list systems, one for foreign investment access and the other for market access.
The Negative List for Foreign Investment Access is only for foreign investors and falls within the scope of foreign investment management. The Negative List for Market Access is a consistent management measure applicable to both domestic and foreign investors, and is part of national treatment.
The 2021 Negative List clarifies that foreign investors are subject to the Negative List for Foreign Investment Access, and shall be subject to the Negative List for Market Access together with domestic investors in China.